Every investor dreams of finding the next big thing – a company that’s quietly building momentum before it takes off. We often start by looking at a company’s Return on Equity (ROE). It seems simple enough: a high ROE means the company is great at making profits for its shareholders.
But as many have learned the hard way, not all high ROEs are created equal. A high ROE can sometimes be a warning sign in disguise.
So, how do you tell the difference?
You use a powerful yet simple tool called DuPont Analysis. Think of it as a financial X-ray that breaks down the ROE to show you what’s really happening inside a company.
Manually calculating these numbers can be a task. Still, tools like Finology Ticker have an in-built DuPont Analysis feature that lays out this crucial data for every stock, making this professional-grade analysis accessible to everyone.
This analysis deconstructs ROE into three core components:
- Profitability: Is the company making a good profit on what it sells?
- Efficiency: Is it using its assets (like factories and equipment) effectively to generate sales?
- Leverage: Is it using a lot of debt to fund its operations?
The quality of the ROE depends entirely on the answers to these questions. Let’s look at three real-world examples to see why this matters so much.
Case Study 1: The Quality Play – How Solar Industries Built a Winning Formula
Solar Industries has been a standout performer in the stock market, delivering an extraordinary 68% CAGR over the past 5 years.. A quick look shows its ROE jumped from 19.47% in 2021 to an impressive 33.49% by 2025. But the real story is in the how.
The Story: A quick DuPont analysis of shows just how impressively the company strengthened its fundamentals between March 2021 and March 2025. Back in March 2021, its Net Profit Margin stood at 11.30%, but by March 2025, that number had surged to 17.08%, meaning the company was generating significantly more profit on every unit of sales.
At the same time, the Leverage Multiplier declined from 1.84x to 1.78x, reflecting a conscious reduction in debt and therefore lower financial risk.
This combination – higher profitability coupled with a healthier balance sheet – is the gold standard of growth. Instead of relying on leverage to boost returns, Solar Industries improved the quality of its earnings. Investors recognised this high-quality growth and bid up the stock accordingly.
It’s a textbook case of how DuPont analysis highlights not just whether ROE is rising, but why.
This is the kind of clear, positive trend an investor can easily spot using the historical DuPont data available on a platform like Finology Ticker.
Case Study 2: The Red Flag – Why Tejas Networks’ ROE Was Misleading
Now, let’s look at a different story of . Despite showing a reported ROE of 13.31% in FY25, Tejas Networks fell 54% in the past 1 year, burning many investors who believed in the “turnaround story.”
The DuPont analysis exposes the glaring red flag.
The Story: In March 2021, the company had a Net Profit Margin of 7.13%, but by March 2025, that margin had actually fallen to 5.00%, indicating a weakening of profitability.
At the same time, the Leverage Multiplier jumped from 1.15x to 2.80x, meaning the company more than doubled its debt burden over four years.
On the surface, this debt-fueled strategy produced an ROE of 13.31%, which looked fine at first glance. But in reality, the “improvement” was driven not by better business performance, but by risky leverage.
Investors who relied only on the ROE headline number missed this red flag. The stock collapse was the inevitable result.
This is precisely why DuPont analysis on Finology Ticker is so useful. It shows whether profitability, efficiency, or leverage is driving ROE so that you can spot risks early.
Case Study 3: The Dream Turnaround – The Force Motors Comeback Story
is a dream turnaround story. The stock has delivered an eye-popping 75% CAGR over the past 5 years, 140% CAGR in the past 3 years, and a staggering 155% return in the past 1 year.
The Story: Back in March 2021, Force Motors was in the red, posting a Net Profit Margin of -6.21% and an ROE of -6.50%. Fast forward to March 2025, and the company’s Net Profit Margin swung to 9.92%, while ROE shot up to 30.29%.
Even more impressive, Asset Turnover surged from 0.63x to 1.69x, showing that the company became far more efficient at generating sales from its assets.
Importantly, this was not achieved by overloading on debt. The Leverage Multiplier rose only slightly, from 1.65x to 1.81x. This means the turnaround was powered by genuine operational strength, not financial engineering.
Investors who tracked these shifts early – using tools like DuPont analysis on Finology Ticker – were able to ride one of the market’s biggest wealth-creation stories.
Make Smarter Decisions, Not Harder Ones
These three stories teach us a vital lesson: the number itself is not the story; the source of the number is.
DuPont analysis empowers investors to:
- Identify Quality: Spot companies like Solar with strong, sustainable fundamentals.
- See Red Flags: Avoid situations like Tejas where debt masks weak profitability.
- Find Hidden Gems: Catch turnarounds like Force Motors before the crowd does.
Investing doesn’t have to be a guessing game. By using frameworks like DuPont analysis, you can cut through the noise and understand the fundamental drivers of financial performance.
With Finology Ticker’s built-in DuPont Analysis, anyone – from a beginner to a seasoned investor – can access this professional-grade insight in just a few clicks.
The next time you analyse a stock, remember: don’t stop at ROE. Look deeper with DuPont, because the quality of growth matters more than the number itself – and spotting that difference could be the key to your next great investment.
Finology is a SEBI-registered investment advisor firm with registration number: INA000012218.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.